Tatas give up chase – Scraps $1.2 Bn Bermuda based Orient Exp.Luxury Rail Hotel Chain Bid

After a bitter public battle through the past six years, the Tatas have finally scrapped their $1.2-billion bid for Bermuda-based luxury hotel chain Orient-Express, citing the unfavourable economic environment, other opportunities and changed priorities.

After a board meeting here on Friday, Tata group company Indian Hotels announced all contracts entered into to facilitate the Orient-Express bid had been cancelled.

Orient-Express has 45 properties across 22 countries. These properties include hotels, tourist trains, restaurants and cruise ships. Indian Hotels owns 6.9 per cent stake in Orient Express. So far, it has invested about Rs 1,000 crore in buying these shares.

“Indian Hotels and Samsara (a group company) continue to remain a significant investor in Orient-Express and intend to monitor and review their investment in the company on a regular basis and may, at any time and from time to time, seek to engage into discussions with Orient-Express regarding its investment,” Indian Hotels, operators of the Taj group of hotels, said in a filing with the US regulator, Securities and Exchange Commission. The company said it would continue to look for opportunities for its seven per cent investment in Orient-Express.

For the Tatas, the Orient-Express bid didn’t fare well ever since it had acquired 11.85 per cent stake in the company for about $211 million in 2007. Soon, Orient-Express shares lost value due to the global slowdown, and the Tatas’ investment shrank considerably.

In 2007, the Tatas had bought Orient shares at $42 apiece; currently, the shares stand at $14.71 apiece.


In October 2012, the Tatas made another offer for the company, at $12.63 a share, which was promptly rejected by the Orient-Express board. This was the second time Orient-Express board had snubbed the Tatas, saying the offer was “too cheap”.

In its offer last year, Indian Hotels had proposed a group managed by Luca Cordero di Montezemolo, chairman of Italian sports carmaker Ferrari and a close friend of former Tata Sons chairman Ratan Tata, would invest $100 million for a minority stake in the combined company.

According to the plan, Indian Hotels would contribute $650 million in cash for the remaining 93 per cent stake in Orient-Express, while the remaining amount would be funded by other Tata group entities and debt from banks. Indian Hotels was to assume Orient-Express’ debt, which stood at $529.5 million as on June 30, 2012.

However, on November 9, Orient-Express rejected the offer, saying it was better off as a standalone firm. “The Indian Hotels proposal…is deeply unattractive from a financial perspective,” Orient-Express Chairman Robert Lovejoy had said in a statement.

“The board believes the current macroeconomic environment, conditions in the luxury hotel business and factors unique to Orient-Express would make this a highly disadvantageous time to sell the company to realise its true value,” Lovejoy wrote in his rejection letter to Indian Hotels.

Orient-Express had a dual-class share structure that prevented Indian Hotels from making any attempt at a hostile takeover.

Bidding partners

While mounting the second takeover attempt, the Tatas had roped in Ferrari chairman Luca Cordero di Montezomolo and, strangely enough, Paul White, the former Chief Executive of Orient-Express, who had rudely spurned their bid for a grand alliance six years ago.

White had been forced out of Orient-Express in a boardroom reshuffle last year.

The Tatas had offered $12.63 per Class A share in Orient Express, which worked out to a 40 per cent premium over the then prevailing price of $9.02 a share. The Orient-Express stock was quoting at $14.79 on the New York Stock Exchange on Friday.

Under the terms of the plan, the Montezomolo family was supposed to invest $100 million for a minority stake in the hotel chain through Charme II, a special fund created by Montezomolo & Partners SpA that invests in leading companies with strong ties to Italy.

Indian Hotels holds 7.13 million Class A common shares of Orient-Express, giving it a 6.9 per cent stake. The shares are held through a Tata subsidiary, Samsara Properties. The Tatas have been stalking the luxury hotel chain since October 2007 when they were rudely rebuffed by Orient-Express.

On August 15 last year, they launched a second overture when they met the then interim chief executive officer of Orient-Express Hotels, Philip R. Mengel.

But this time they were politely told that Orient-Express was not interested in exploring such a transaction.

In December 2007, its stake had risen to 11.5 per cent when it bought the Orient-Express stock in phases, at times paying as much as $60 a share. In 2007, the Tatas had spent about $300 million to corner the Orient-Express shares.

A poison pill mechanism devised by Orient-Express at that time created a special class of super-voting Class B shares that slashed the voting rights of the Tatas and two other hedge funds that had also bought into the company. Orient-Express was also able to ward off a legal challenge from the two hedge funds against its poison pill and other corporate governance practices.

It would never have been possible for the Tatas to acquire Orient-Express through a hostile bid because of the structure of the poison pill.

Orient-Express Holdings 1 Ltd, a wholly-owned subsidiary of the Bermuda-based hotel chain, holds all 18,044,478 outstanding class B common shares, which represent 64 per cent of the combined voting power of its class A and B common shares.

In a recent filing, Orient-Express had said: “As long as the number of outstanding class B shares exceeds one-tenth the number of outstanding class A shares, Holdings could control the outcome of most matters submitted to a vote of the shareholders.”